Merdian Tracer Company is evaluating some of its larger clients. Some of the management believes that...

 

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Merdian Tracer Company is evaluating some of its larger clients. Some of the management believes that certain clients are not as profitable as others due to some of the period costs associated with each customer. Some of these customers may even be costing the company money. Management is interested in a customer cost analysis, but there is some debate as to whether or not Activity Based Costing would apply to this situation. Customer Gross Profit Purchase Orders Service Calls Returns Processing Customer Inquiries Shipment Invoices Activity S Order Processing Repair Processing Product Returns Customer Service Shipping Out Mars Men 965,000 $ 80 20 5 12 15 Driver Purchase Orders Service Calls Returns Processing Customer Inquiries Shipment Invoices $ Customer List $ Jupiter Giants 2,500,000 $ 200 60 25 40 3 Total Cost 500,000 800,000 1,800,000 800,000 Pluto Partners 450,000 1,100,000 5,000,000 10 2 N in M 5 3 5 Due to the size of these customers, the accounting department was easily able to procure cost information directly related to these specific clients: Venus Village Mercury Managers $ 2,500,000 $ 100 150 120 20 80 1,250,000 $ 0 30 10 15 25 40 Total 7,665,000 430 262 165 90 128 Required: 1. Calculate the Predetermined Overhead Rate if management believes that Order Processing is the main cost driver 2. Use the Predetermined Overhead Rate from Requrement 1 to determine the profitability of each customer. 3. Use Activity Based Costing to determine the Activity Rates for each customer activity. 4. Use the Activity Rates to calculate the profitability of each customer. Merdian Tracer Company is evaluating some of its larger clients. Some of the management believes that certain clients are not as profitable as others due to some of the period costs associated with each customer. Some of these customers may even be costing the company money. Management is interested in a customer cost analysis, but there is some debate as to whether or not Activity Based Costing would apply to this situation. Customer Gross Profit Purchase Orders Service Calls Returns Processing Customer Inquiries Shipment Invoices Activity S Order Processing Repair Processing Product Returns Customer Service Shipping Out Mars Men 965,000 $ 80 20 5 12 15 Driver Purchase Orders Service Calls Returns Processing Customer Inquiries Shipment Invoices $ Customer List $ Jupiter Giants 2,500,000 $ 200 60 25 40 3 Total Cost 500,000 800,000 1,800,000 800,000 Pluto Partners 450,000 1,100,000 5,000,000 10 2 N in M 5 3 5 Due to the size of these customers, the accounting department was easily able to procure cost information directly related to these specific clients: Venus Village Mercury Managers $ 2,500,000 $ 100 150 120 20 80 1,250,000 $ 0 30 10 15 25 40 Total 7,665,000 430 262 165 90 128 Required: 1. Calculate the Predetermined Overhead Rate if management believes that Order Processing is the main cost driver 2. Use the Predetermined Overhead Rate from Requrement 1 to determine the profitability of each customer. 3. Use Activity Based Costing to determine the Activity Rates for each customer activity. 4. Use the Activity Rates to calculate the profitability of each customer.